The team, led by Frank Troise, will drive the bank's agency execution capabilities, matching buyers and sellers of securities across asset classes and collecting commission along the way.

The new unit will complement the bank's existing fixed income trading services, where the bank acts as principal and pockets the spread between where it buys and sells positions for its clients.

A number of banks have been expanding their agency offerings in recent months, according to consultants, as new regulations bring about structural changes to the way fixed income markets operate.

But given the size and standing of JP Morgan – it has an 11.4% market share in US fixed income trading, according to consultancy Greenwich Associates – its move is significant.

The logic behind it is straightforward. Simply put, new regulations are making it more and more difficult to make returns via the principal-driven model. Increased capital requirements make it more expensive for banks to hold large levels of corporate bond inventory on their balance sheets.

Furthermore, the emergence of new regulated trading platforms known as swap execution facilities, or SEFs, are eating into banks' revenues from over-the-counter trading in certain interest rate products and credit default swaps.

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At present, there are more than 20 of these SEFs in existence, making the market "too fragmented, complex and costly for efficient trading", according to the consultancy McKinsey.

Given that many of these platforms are relatively new, there is heightened demand for banks to act as intermediaries between their clients and the SEFs – this would obviate the need for the buyside to connect directly to the SEFs or comply with their rule books.

McKinsey said in a report last month: "An opportunity is knocking. Broker-dealers, especially those with strong agency capabilities in other asset classes, might consider accelerating the development and rollout of SEF-focused agency offerings.

"The market is likely to only have room for a few winners, so those that connect with the buy side’s infrastructure early on will have an advantage."

An agency approach fits well with the capital-light business model that many of the largest banks are now seeking to employ in fixed income. These banks are aiming to turn their balance sheets over as quickly as possible in the markets that require principal-driven trading, and offer a strong agency execution offering where possible to complement this.

That is the opportunity. The challenge is in the economics.

Firstly, the revenue model in fixed income is arguably ill-suited to an agency approach. Whereas trading revenues in the equities markets are derived from commissions, in fixed income they come from the spread between where a position is bought and sold. An agency model for fixed-income would likely mean a change from spread-based to commission-based payments, which could prove less lucrative in the less liquid fixed income markets.

One head of electronic trading said: "The piece that hasn’t been figured out is how you get paid for that agency model [in fixed income]. It is very straightforward in equities or futures, as you charge a commission or a transaction fee."

Secondly, the transition to agency could bring with it short-term pain, albeit for potential long-term gains. There is the possibility that the agency model will eat into the more cash-generative principal business at first; meaning banks would essentially be running with agency-like revenues and a broker-dealer cost base.

Oliver Wyman, in a report with Morgan Stanley, said earlier this year that while there is likely to be a first mover advantage for those which are able to define the new market structure, “the largest banks have much to lose”.

"Banks must decide whether to push change, or to defend the status quo”, the consultancy added.

In its memo announcing the changes, JP Morgan referred to “a unique opportunity to make decisions now that will impact the way we, and the industry, will do business for years to come. Doing so will enable us to lead change versus react to it”.

Now that one of the world's largest fixed income traders has made its move, expect others to follow.